HANGING IN THE BALANCE; CREDIT UNIONS AWAIT CRUCIAL RULING.

Byline: Deborah Adamson Daily News Staff Writer

Today is an important date for Charles Bruen.

That's because the U.S. Supreme Court will hear a case this morning upon which hangs the future of his and other credit unions nationwide.

If they lose, millions of Americans could be forced to give up their credit union membership or be barred from joining one. The high court's decision is expected to be announced during the first half of 1998.

``We view it like other people would going into a major court case - with a lot of apprehension, a lot of anxiety,'' said the president and chief executive of 36,000-member First Entertainment Federal Credit Union in Hollywood. More than half its members come from the San Fernando Valley.

If banks win, ``it would be a disaster,'' he predicted.

In a drawn-out and vitriolic fight in both the courts of justice and public opinion, banks and credit unions have been quarreling over the latter's membership rules. Credit unions say their financial health is at stake; bankers say it's just a matter of fairness.

The lawsuit arose because banks don't like that credit unions can admit companies beyond their founding business. For instance, if XYZ Co. created a credit union, under current rules XYZ Credit Union could add employees of DEF Inc. and PDQ Corp. as well, even if all three belong to different industries.

Bankers contend that such ability, which was granted by the National Credit Union Administration, violates the Federal Credit Union Act of 1934, which they say allows only people with one ``common bond'' to constitute the membership of a credit union.

They argue there's no single common bond in credit unions like First Entertainment, which serves firms as diverse as Warner Bros. and the California Angels.

``It's illegal,'' said Virginia McGuire, spokeswoman for the American Bankers Association in Washington. ``You don't need any more justification than that.''

Before 1982, credit unions served either one company or closely related companies. But 15 years ago, the NCUA allowed companies from different industries to join the same credit union because a spate of business failures threatened the financial viability of these institutions.

The NCUA said the Federal Credit Union Act allowed the agency to modify rules to keep credit unions financially stable. And a credit union that relies on only one or two companies puts itself in jeopardy if one of the firms fails.

That's what happened to Lockheed Federal Credit Union in Burbank.

When the local aerospace industry slumped, the credit union lost a lot of members to layoffs. In 1984, it decided to admit other companies so the credit union would be less vulnerable to the ups and downs of the industry.

``Growth is important to the stability and vitality of credit unions,'' said Patrick Keefe, spokesman for the National Association of Federal Credit Unions in Arlington, Va.

But banks didn't like this practice. They sued credit unions and the NCUA, challenging its interpretation of the Federal Credit Union Act. But the banks always lost the lawsuits.

That is, until July 1996.

In a case against the AT&T Family Federal Credit Union of Winston-Salem, N.C., by the American Bankers Association and several North Carolina banks, a federal appellate court ruled the NCUA did not have the authority to allow credit unions to expand their membership in 1982.

The court ordered credit unions to stop adding new companies as members.

Stunned, the credit union industry complied but circled its wagons. It appealed the decision to the Supreme Court.

Credit unions also began an intense publicity campaign, aimed at Washington lawmakers and their constituents. In March, a bill was introduced in Congress called the Credit Union Membership Access Act, which seeks to put the NCUA's interpretation into law. The bill is in debate in the House Banking Committee.

The fight is intense because if banks win, it would mean a radical change in the nature of all credit unions. It also could force people to withdraw from their credit union, presumably to take their money to the nearest bank or thrift.

This is not the first battle banks have picked with credit unions. The banking industry has tried to overturn through Congress the tax-exempt status of credit unions, calling it an unfair advantage in the competition for customer dollars.

Both federally and state-chartered credit unions don't pay federal income taxes. However, a handful of state-chartered credit unions pay state income taxes. California is one of those states that require it.

Curtis Reis, president of Alliance Bank in Culver City, believes it is unfair for credit unions to get what he calls ``corporate welfare.''

``The real issue is nipping the tax exemption in the bud,'' he said.

If the Supreme Court rules against banks, ``we'd have to go back to Congress'' to take away the tax-exempt status, Reis said. Bankers like Reis say the tax-exempt status allows credit unions to offer lower cost products to its members, undercutting small community banks like Alliance.

But Mark Lowe, a spokesman for the Pomona-based California Credit Union League, said credit unions can offer their members better rates because they don't have to answer to stockholders.

``What makes credit unions able to offer lower fees, lower rates on loans and higher returns on savings is not that they are exempt from federal income tax. That advantage comes because credit unions are nonprofit,'' he said.

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Photo, Chart

Photo: (Color) Charles Bruen, the president and chief executive officer of First Entertainment Federal Credit Union, awaits a key Supreme Court decision.

Terri Thuente/Daily News

Chart: (Color) FINANCIAL PORTFOLIO

Although there are more credit unions than there are banks and thrifts combined, credit unions don't pack as much financial clout.

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